How low-income credit unions benefit underserved communities

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    Members of low-income communities often deal with high levels of financial stress. Many find themselves living paycheck to paycheck while having to work multiple jobs to make ends meet. As a result, there is insufficient time and resources to put a sound financial health plan in place for the future.

    Under these circumstances, it’s understandable why a credit card would seem to be out of reach. Luckily, credit unions with low-income designations can offer financial tools and services to underserved communities.

    If you’re looking for credit card options and live in a low-income area, credit union credit cards might be worth considering. 

    Challenges for low-income earners

    When faced with sudden or even basic everyday expenses, some families find themselves drowning in responsibilities their regular paychecks can’t cover. Single parents especially feel the financial struggle in a society that caters to two-income homes. The United States Department of Agriculture reports single-parent families making less than $59,200 spend an average of $172,200 on a child from birth to age 17. School supplies, clothing, medical expenses and more, all play a role in adding up to thousands of dollars spent yearly. 

    While married couples earning a household income of less than $59,200 spend only slightly more on a child during those same years, 83% of single-parent families fall into that income bracket compared to only 33% of married couples. 

    Even essential expenses like groceries can consume a large portion of a low-income earner’s salary. A four-person family with a toddler and teenager spends an average of $628.70 per month on even the thriftiest of grocery budgets. Combined with other non-negotiable expenses like rent or mortgage, utilities, phone bills and home maintenance, paychecks might not stretch far enough to make ends meet. 

    Credit cards from low-income credit unions can be used to help fill in the gaps to make sure your family’s needs are met. To join a local low-income credit union, consider which one you might qualify for based on their “fields of membership.” 

    Typical fields of membership include the company or industry you work for, the town you live or work in, or local and national groups you’re a part of. If you don’t meet any of the qualifications, see if there’s an organization on their list you can join for a nominal fee. Sometimes all that’s required to become a member of a qualifying group is a small donation. 

    Some credit unions are privately insured, but any credit union you choose should be backed by the federal government to protect your funds. NCUSIF-Insured credit unions are the safest. Also consider shopping around for the best rates and prices on the products and services you want. Be sure to read and understand any fees and terms associated with the credit union before joining. 

    What are credit unions for low-income communities?

    The biggest distinction between credit unions and banks is that credit unions are nonprofit businesses, while banks are for-profit. Credit unions also have a member-focused model where each member is part owner. These organizations answer to their members, while banks have stockholders who they must cater to first. 

    Because credit unions serve members, some of their benefits for low-income families/earners include: 

    • More flexibility for those with imperfect or little to no credit histories
    • Lower fees and interest rates on loans and credit cards
    • Better loan terms and higher annual percentage yields (APYs) on deposit accounts
    • Products and services at a better value, such as free checking, tax preparation and financial counseling
    • Variety of loan options, such as payday loan alternatives and auto, personal and even real-estate loans

    Low-income credit unions

    The National Credit Union Administration — the federal agency governing credit unions — offers a low-income designation. Credit unions serving low-income areas can apply for the designation if 50.01% or more of the members are considered low-income earners. The NCUA uses US Census Bureau data to determine if members meet the income thresholds for the designation.

    The benefits for credit unions to be designated as low income include:

    • More access to capital for small business lending
    • Access to grants and low-interest loans from the Community Development Revolving Loan Fund
    • Accept deposits from non-members from any source
    • Access to supplemental capital

    Credit unions that receive the low-income designation are able to use the benefits from the NCUA to help promote financial wellness in the community. Many low-income areas suffer from a lack of financial resources and education. The low-income designation makes it easier for a credit union to provide the tools and services low-income members need.

    There are several ways having a low-income designation can help a credit union better serve its community, including:

    • Providing access to accounts with low minimum balances
    • Awarding loans with small dollar amounts
    • Providing small business loans in small dollar amounts
    • Offering loans and credit union credit cards to help members with limited or poor credit history build credit
    • Creating access to financial services like financial counseling or education courses for members

    Minority-owned credit unions

    Minority-owned credit unions assist and meet the needs of minority communities who have traditionally been underserved and unbanked. Minorities turned down at other banking institutions because of credit histories and other financial credentials are often offered a second chance at minority-owned credit unions. To specifically find a Black-owned bank or credit union, this map can serve as a useful tool.

    Credit unions for seniors

    Low-income seniors can take advantage of the many free products and services credit unions offer, as well as their budget-friendly loan and credit card rates and terms. Local credit unions also have unmatched one-on-one customer service and welcome face-to-face interactions.

    Low-income community credit unions in the United States

    If you’re living in a low-income area, you may be able to join a low-income community credit union. Use the chart below to find a credit union with low-income designation near you.

    Talk with a customer service representative from your local low-income credit union to find out what type of credit cards they offer. Be sure to ask the following questions about credit cards from the credit union:

    • What are the eligibility requirements?
    • What are the annual fee and interest rate?
    • How much are credit union member fees?
    • Do I need a certain type of account to apply for a union bank credit card?
    • Do your credit cards offer rewards?

    Credit card options for low-income community members

    Having a low income doesn’t mean you’re not qualified for a good credit card. In fact, there are many low-income earners with excellent credit. Even with a low credit score or limited credit history, you may still be able to get a credit card that works for you.

    It may seem illogical to open a credit card to improve your financial standing, but credit cards can drastically improve your financial health and open future doors when used responsibly. That’s because credit cards build your creditworthiness, a major factor in loan approvals that can finance dreams like owning a car or buying your first home. 

    Low-income credit unions provide a variety of programs geared toward those with limited incomes. For example, many low-income credit unions offer credit-builder loan programs, lower barriers for approval and better credit card interest rates. 

    Some of the credit card options available to low-income community members are:

    • Cash back or rewards cards with limited fees
    • Cards with no annual fees
    • Secured cards
    • Union bank credit card

    Getting a credit card from a low-income credit union has advantages and disadvantages. Here are some reasons to get a credit union credit card:

    • Generally lower variable APRs and fees
    • Low cost or no-fee balance transfers

    On the other hand, getting a credit card from your credit union may not be the best choice. Disadvantages to a credit card from a credit union include:

    • Membership and credit union account requirements
    • Fewer locations

    Most credit card providers also have card options for low-income earners or people with limited credit history. Below are two credit cards that may work for you if you decide a credit union credit card isn’t right for you:

    Capital One Platinum Credit Card

    The Platinum Credit Card from Capital One is designed to give you a higher credit limit automatically. As long as you make your first five payments on time, the credit limit on your card will increase. The card also features a $0 annual fee, so you won’t be spending hard-earned money to have the credit card. You’ll also get access to your credit score from Capital One’s CreditWise® program.

    Discover it® Secured

    A secured credit card is great for low-income earners or anyone with limited or poor credit history. You make a cash deposit when you open the card. The amount of your deposit is your credit limit. The Discover it Secured card has no annual fee and allows you to build your credit history. You get to choose your credit limit up to the amount you’re approved by making a refundable deposit. You’ll get 2% cash back on purchases at gas stations and restaurants (up to the first $1,000 per quarter, then 1%). Discover will even match the cash back you earned at the end of your first year.

    Take advantage of credit union resources

    Credit unions offer so much more to its members than just deposit accounts and loans. While options vary by the credit union, you’ll frequently see resources and programs like:

    • Free financial counseling and online debt management courses for general budgeting advice, student loan counseling, free credit counseling and more.
    • Credit building opportunities through secured credit cards. Many waive fees and give free credit score monitoring.
    • Micro-investing services baked into deposit accounts. Debit card purchases automatically round up to the next dollar and transfer the difference to savings accounts. The amounts are small enough not to be missed but can add up to hundreds over time. 

    If you’d like to save even more money for vacations, large purchases or fully-funded emergency savings, best practices like creating and sticking to a budget, trimming extra expenses and making automatic withdrawals into savings accounts will help you reach your goals. 

    Avoiding common money mistakes also helps keep more money in the bank. For example, not reviewing monthly credit card bills can cause you to miss fraudulent charges, double charges and unused subscriptions. Not adjusting your spending habits to income changes may also cause debt to pile up on credit cards, which can also negatively impact your credit score. 

    If you’re striving to rebuild your credit, John Jodka—a NACCC-certified credit counselor working with Christian Credit Counselors—advises to “Use credit responsibly. A credit score is a measure of performance over time. If people have things like missed payments or even things like bankruptcies in their past, it’s important to have a long history of good credit behavior.” He adds that “keeping balances low, making payment on time, and keeping accounts open for long periods of time” are all essential to the process. His biggest piece of advice for those looking to improve their creditworthiness is to “be patient. Rebuilding your credit could take a long time.”

    Resources for low-income families

    Low-income credit unions pick up the slack where traditional banks and credit unions can’t fully meet the needs of low-income earners. But there are also a plethora of other programs that can help. “Look for local resources in [your] area. 211.org is a great website where people can get matched up with local resources whether that’s rental assistance, food assistance, or be linked up with free budget counseling services like ours,” states Jodka. If you’re feeling overwhelmed, finding “resources for that specific thing that’s causing the biggest budget obstruction is a good start.” 

    There are also various state-run or government-funded resources low-income families can make use of. To find them, start by searching your home state’s website or your city’s website for available programs. California and New York, for example, have several state programs to help its residents meet everyday necessities, receive food assistance and healthcare coverage, and obtain housing assistance. 

    Some government assistance programs for low-income families include: 

    In a nutshell

    Low-income community credit unions make it easier to get the tools you need to build credit and set financial goals. Find the nearest low-income credit union near you to see if you can become a member. You’ll get the benefits of expanded credit building tools, such as small-dollar loans.

    Finding a credit card as a low-income earner can be difficult. However, there are plenty of options for low-income communities. Low-income credit unions often offer credit cards as well as national credit card providers. These options make it possible to get a credit card that works for you and may even provide perks like cash back.

    Lorraine Roberte

    Personal finance writer

    Lorraine is a South Florida based personal finance and digital marketing freelance writer who drafts content for businesses and startups.